Put simply, capital is the funding for us to build wealth, either as money or another form of financial asset. Capital Gains is the profit you make on the selling of assets which incurs a tax that needs to be paid which we know as Capital Gains Tax (CGT). This tax can be calculated in a few different forms depending on the circumstances, which include the ‘discount method’, ‘Indexation method’ and the ‘Other method’.
Most commonly used by individuals is the discount Method. This is a method which provides the seller with a 50% discount on the Capital Gains they are required to pay when lodging their annual tax return, so long as the asset has been owned for a minimum of 12 months and is not owned by a company.
What happens to the remaining Capital Gains? In some cases, 50% can still be quite substantial.
Fortunately, it is possible to further reduce the Capital Gains Tax you are required to pay through a Capital Gains Report. If you have completed serious renovations on your rental property but were unable to keep track of costs, you can obtain a Duo Tax Capital Gains Report to identify the increase in capital costs resulting in a reduced capital gain for tax purposes.
A property was purchased in 2006 for $600k, then sold in 2017 for $1mil.
Capital Gains (CG) = $400k profit from sale ($200k CGT be paid).
However, During 2016 - 2017, a Quantity Surveyor estimated renovations took place equaling $150k.
$400k (profit) - $150k (Renovations)
= $250k (New cost base)
Finally, working out the capital gains tax to be paid
$250k * 50% (Discounted method)
= $125k (New CGT to be paid)
Net Outcome = 200k – 125k
Without Report - $200k CGT to be paid
With Report - $125k CGT to be paid
= $75k x Your marginal tax rate
This is the benefit of obtaining a Capital Gains Report from Duo Tax Quantity Surveyors and the savings it can bring you. If you are interested, feel free to give us a call us on 1300 185 498 or email us at email@example.com